If you’ve ever thought, “I wish someone would test me on how much insurance lingo I know,” your time has come!
Get out your thinking caps, find a cozy spot and take this quiz to see how much you know about your home insurance policy. The answers with explanations are at the end. Terms like “endorsement” and “sublimit” will now have actual meaning. No peeking! Getting there is all the fun.
Take the quiz
1. The term “actual cash value” or “ACV” means:
A) The amount you paid for an item
B) The replacement cost of an item
C) The depreciated cost of an item
D) The amount you can sell an item for on an internet auction site
2. A “deductible” is the amount you pay out of pocket before your insurance policy starts to pay a claim.
True or false?
3. The term “proximate cause” means:
A) The immediate reason for an insurance claim
B) The root cause of a loss
C) The obvious cause of a loss
D) All of the above
4. “Loss of use coverage” can help cover living expenses if you have to move out of your house while repairs are made.
True or false?
5. What does “underwriting” mean?
A) It’s the process an insurance company uses to decide how much to charge you for an insurance policy.
B) It’s the document that outlines your insurance coverage agreement.
C) It’s the process an insurance company uses to decide whether to accept or reject your mortgage loan or renters application.
D) It’s the document that proves you have insurance.
6. “Personal liability protection” includes protection for which of the following events?
A) Unintentional property damage and injuries that you cause
B) Medical expenses for you and your family members
C) Damage to your personal property and belongings
D) Intentional property damage and injuries that you cause
7. The “Insured” on a policy refers to the insurance company.
True or false?
8. An insurance policy “exclusion” means:
A) Dangers or damages covered by the policy
B) Dangers or damages not covered by the policy
C) The maximum amount the insurance company will pay for a claim
D) Dangers or damages the insurance company promotes for exclusive policyholders
9. What are “special limits of liability” or “sublimits” in an insurance policy?
A) The maximum amount a policy will pay for certain types of property or losses
B) A special discount the insurance company gives clients with good credit
C) The total amount a policy will pay for every claim you have during your policy term
D) A special discount the insurance company gives clients for being underinsured
10. A “rider” or “floater” means:
A) A way to cover other people who drive your vehicle
B) Additional insurance coverage for high-value items you own
C) A discount that reduces the policy costs
D) Coverage for pest infestations
11. What is a “peril”?
A) The location of your property
B) The actual cash value of your home
C) The danger that causes loss or damage
D) The amount you have to pay after your insurance pays for a claim
12. “Aggregate limits” refer to the most your insurance will pay for all claims during the policy period, regardless of your policy limit.
True or false?
13. What is an “endorsement”?
A) A company that recommends the policy
B) A change or addition to your standard insurance policy
C) A claim submitted to the insurance company
D) A person who vouches for you when you have a claim
Answer key, with explanations:
1. C. “Actual cash value” or “ACV” is the depreciated cost of an item. ACV is less than what it costs to replace something based on current values. On the other hand, “replacement value” or “RV” is the cost to replace an item based on current values.
2. True. A “deductible” is what you pay out of pocket before the insurance company begins paying for your claim. You can raise or lower your deductible to lower your insurance payments. Make sure you can afford the out-of-pocket costs if you have a claim.
3. D. All options provided define “proximate cause,” the first event in a chain of events leading to a loss. Understanding the proximate cause is essential. Your insurance company decides whether to cover your claim based on the incident’s root cause.
For example, say your basement floods. If your insurance company finds the water flowed into your basement from outside your house, the proximate cause would be a flood. They wouldn’t cover it unless you had a flood insurance policy.
But if your insurance company finds the water damage in your basement is from burst pipes inside your house on the floor above, the proximate cause would be unexpected burst pipes.
The proximate cause of a loss can make or break a claim payout.
4. True. “Loss of use” coverage reimburses you for additional living expenses (ALE) if you can’t live in your home while it’s being repaired. You can pay extra to increase the amount of coverage in your standard policy. However, the damage must be caused by something covered under your policy.
For example, if you had to live somewhere else after a fire, your ALE insurance would cover hotel and transportation expenses up to a certain amount. But if you had a flood, your standard home insurance would not cover any costs. You’d need to add flood insurance for that.
5. A. “Underwriting” is the process insurers use to determine how much to charge you for your insurance policy. They evaluate multiple factors to price your policy, including the number of insurance claims you’ve had, where you live, how old your house is and much more. Some companies use satellite images and drones to view the condition of your home. In many states, it’s legal to check your credit scores and raise or lower prices based on the results.
6. A. “Personal liability protection” covers unintentional property damage and injuries you might be legally responsible for. It includes bodily injury, like a slip-and-fall on your property. It also includes personal injury, like being sued for defamatory statements you unintentionally made against another person. There are limits on how much your insurance company will pay based on the terms of your policy.
7. False. The “Insured” is you, or the person or entity the insurance company covers. The insurance company is called the “Insurer.”
A word on policyholders: Policyholders and insureds are not the same. A policyholder is the person who owns and pays for the policy. But you can be the insured and not the policyholder. In a home insurance policy, the “insured” extends beyond the policyholder to include other household residents, like spouses, children and full-time residents.
8. B. “Exclusions” are specific situations, perils or damages your insurance company won’t cover. For example, home insurance policies exclude damage caused by pest infestations.
9. A. “Sublimits” are the maximum amounts your home insurance policy will pay for certain types of property or losses. Sublimits are always lower than your overall policy limits. For example, some home and renters policies only cover up to $2,000 for personal property like jewelry, electronics, firearms or artwork. You can increase these sublimits by paying more for additional coverage.
10. B. A “rider” or “floater” is extra coverage you can add to your home or renters insurance for high-value items. Electronics, jewelry, firearms, artwork and antiques are common items that need more coverage. Riders can be used to increase sublimits on items. For example, let’s say you have $10,000 in computer equipment. You’d add coverage beyond the $2,000 minimum using a rider to cover general computer equipment.
People sometimes use the term “scheduled property.” That’s not the same as a rider. Scheduled property items are listed and described separately, and carry specific insurance amounts. For example, you might list a piece of expensive jewelry as a scheduled property, insuring it for its verified appraisal amount.
11. C. A “peril” refers to a specific risk or cause of loss covered by an insurance policy. Examples include fires, windstorms and theft. For example, if a fire damages your home, the insurance company is responsible for compensating you for that peril. The perils covered by your policy are listed in the insurance contract. Some perils are not included in home insurance policies. Examples include floods, sewer backups and earthquakes. You can pay extra to add coverage for these perils. Your agent can help.
12. True. An “aggregate limit” or “lifetime limit” is the maximum amount the insurance company will pay for all covered losses during your policy (usually one year). Once this overall limit is reached, the insurance company won’t pay for any more claims. Aggregate limits reset after each policy renewal.
13. B. An “endorsement” is an added contract that changes your policy’s original coverage. An endorsement can increase or decrease coverage. It can add or delete specific items from your policy.
Most standard insurance can be changed using an endorsement. For example, if you want to add coverage for events like sewer backups, you can do it using an endorsement. Sewer backups occur during flash rainfalls when sewer systems become overloaded and backflow into homes.
This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem.
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